Sales of the Tesla Roadster "within the U.K. have been lower than expected and, in particular, have fallen well below the level of sales in the EU and the United States." Photographer: David Paul Morris/Bloomberg

Apple Bond Issue? Steve Jobs Would’ve Bought Tesla

May 2 (Bloomberg) -- When I woke up yesterday, like every
day, I grabbed my iPhone from the bedside table and began
looking through my e-mail and checking my stock portfolio,
Facebook and Twitter. I was interested to note that Apple Inc.
plans to work with several car manufacturers to integrate maps
and other products into cars -- the reaction, however, was scant
at best.

In the Steve Jobs era, this would be the type of event
reserved for the Worldwide Developers Conference; now, like the
last several launches of “new” products, it was thrown into
the garbage heap of “So what?”

Scrolling down, I saw that Apple had also issued $17
billion of bonds -- to which the sheepish world of value
investors reacted with unbridled enthusiasm. It was as if
someone had lowered the annual fees on their American Express
Centurion cards. Who wouldn’t want to own Apple debt? Dividend
yield? Yum yum!

This sad display is a telling sign for what was, less than
six months ago, the greatest comeback story and greatest
technology company of all time: There was now more excitement
from a bunch of pension funds and hedge funds about debt than
the sum total of consumer interest and support for Apple’s
latest products. Lines of consumers outside the Apple Store have
been replaced by a line to the CFO’s office. Generally, I think
it portends poorly when investors are your biggest supporters
and consumers couldn’t give a damn.

It is rumored now that Apple, to stem the tide of
skepticism, is going to build a TV and a watch. Unfortunately, I
think it has missed the big picture.

TVs will probably turn out to be a very difficult product
category. Yield, supply chain, margin and meaningful
differentiation will all be difficult, mostly because the
industry has been moving forward progressively. Even if Apple
wins in TVs -- what will it mean? It will have won a $5 billion
market? Maybe $10 billion? This year the company is forecast to
make $173 billion. Maybe this won’t be true of watches. Who
wouldn’t want a watch that is interactive, useful beyond telling
time and marked the next sign of the coming hipster-ocalypse?

Personally, I prefer mechanical watches. But I’m probably
not the target market, which made me think, what is the most
important part of my life that Apple could meaningfully improve
and that I would want them to take over? How about my car?

After houses, cars are the most important discretionary
purchase people make. The default rates on cars are lower than
any other discretionary item. People love cars, sometimes more
than they love their kids and pets. The automobile industry also
happens to be an area where a supply-chain ninja like Tim Cook
could unshackle himself from the milquetoast, say-nothing,
uninspiring margin-tweaker image he has created for himself.

Imagine a world where Apple takes over the car for you. It
will be beautiful. It will be connected. It will be intelligent.
It will do all the little things that delight you: Imagine
getting into the car, at which point it looks at your iPhone
calendar and automatically programs the address of the place
you’re going into the GPS so that you don’t have to (Tim: 5
percent for that idea, please). Spend just a second thinking of
all the other insanely cool (and simple) things that would make
you fall in love with your car.

It will integrate iCloud, stream your entire music
collection, allow your kids to watch movies from iTunes in their
seats, play games using iPhone controllers and use Apple
touchscreens embedded into the headrests. The list goes on.

The point is this: Small companies become great by doing
one thing well and then expanding scope logically and
methodically with scale. But great companies can only stay great
when they find huge new markets and boldly move into them using
their skills as a differentiator against entrenched incumbents.

I don’t know about you but I would much rather pick Apple
over Ford before I pick Apple over Samsung.

But where to start? Apple should buy Tesla Motors
(disclosure: I own AAPL but not TSLA). The reasons are pretty
obvious: an $80 billion-plus global car market and a company
with a highly technical team that can build an amazing product
at the high end of the market (and that’s run by a maniacal
visionary with extreme ambition). Sound familiar?

The right move would be for Apple to enter the car space,
buy Tesla and make Elon Musk the CEO. Cook could move back to
COO. Obviously this will never happen. The market is too big.
Tesla is too good, and Cook is probably too weak to do something
this radical. Apple has shown little ability to think boldly and
use its cash hoard for anything but the obvious dated plays that
make it more like an oil company, bank or railroad than a high-tech world-beater.

Most important, the reason Apple won’t do it is also the
reason that the long-term deck is stacked against it. Much in
the same way that a cycle of innovation and risk-taking gave
them a 10-year runway, fear, small mindedness and reversion to
the mean will create a 10-year cycle of decay.

I for one would buy an iCar. Too bad Apple would rather
sell me a watch. Or a bond.

(Chamath Palihapitiya is an entrepreneur, investor, early
Facebook executive and co-owner of the NBA’s Golden State
Warriors. He is the founder and managing partner of the venture
firm the Social Capital Partnership.)

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